What's the difference between a 401(k), a traditional IRA and a Roth IRA?

Two different questions, wearing one name each

People compare these three as though they were three points on a line. They are not. There are two separate distinctions here, and once you separate them the whole thing gets simpler.

Where the account comes from. A 401(k) is a plan your employer offers. No employer, no 401(k). An IRA is an individual retirement arrangement you open yourself, and nobody has to offer you anything.

When the tax is taken. A 401(k) and a traditional IRA are funded with money that has not been taxed yet, and the tax arrives when you take it out. A Roth is the other way round.

Before tax: 401(k), traditional IRA

Nothing taxed going in, nothing taxed as it growsTaxed as income coming out

After tax: Roth IRA, designated Roth account

Taxed as you earn itNothing taxed as it grows, nothing on a qualified withdrawal

While you are workingWhen you take it out

Roth is not a third kind of account. It is a tax treatment. There are Roth IRAs, and there are designated Roth accounts inside a 401(k), so "401(k) or Roth" is a question with a false premise.

The IRS puts the difference as plainly as anyone could. Designated Roth contributions are "made with after-tax dollars", pre-tax ones with "before-tax dollars". On the way out, a Roth withdrawal of "contributions and earnings are not taxed provided it's a qualified distribution", while from a pre-tax account "withdrawals of contributions and earnings are subject to federal and most state income taxes".

How much can go in

This is where the two account types stop being comparable at all.

The 401(k) figure is what you can defer out of your own pay. Anything your employer puts in is on top of it, which is why a plan with a match is worth more than the headline number suggests.

The IRA figure is the one people get wrong. The IRS is explicit that "the total contributions you make each year to all of your traditional IRAs and Roth IRAs can't be more than" the limit. It is $7,500 across both, not $7,500 each. And it is capped at your taxable compensation if that is lower.

The income limits, which only apply to some of it

A 401(k) has no income limit. Earn what you like, you can still defer into it.

An IRA is different, in two separate ways.

A Roth IRA has an income limit on contributing at all. For 2026 the phase-out range "is increased to between $153,000 and $168,000" for singles and heads of household, and "between $242,000 and $252,000" for married couples filing jointly. Above the top of your range you cannot contribute directly.

A traditional IRA has an income limit on deducting it. You can always contribute. Whether the contribution reduces your taxable income is another matter, and for "single taxpayers covered by a workplace retirement plan, the phase-out range is increased to between $81,000 and $91,000".

So the same person can be shut out of a Roth for earning too much while a traditional contribution simply stops being deductible, which is not the same thing as being shut out.

Getting the money out

The age is 59½ for all of them. Take money out before it and, on top of ordinary income tax, "most retirement plan distributions are subject to income tax and may be subject to an additional 10% tax."

The exceptions are worth knowing because several are the situations people actually find themselves in: death or total and permanent disability, unreimbursed medical expenses above 7.5% of adjusted gross income, a series of substantially equal payments, separating from service at 55 or later, a first home up to $10,000 or qualified higher education expenses for an IRA, health insurance premiums while unemployed, a qualified birth or adoption up to $5,000, a domestic relations order, an IRS levy, and certain military reservist and disaster distributions.

A Roth withdrawal has a second test. Being 59½ is not enough on its own. To be a qualified distribution the account must be "held for at least 5 years" and the withdrawal made on disability, on death, or at "attainment of age 59½". Someone who opens their first Roth at 62 has five years to wait regardless of their age.

Then the direction reverses. From 73, "you generally have to start taking withdrawals from your IRA, SIMPLE IRA, SEP IRA, or retirement plan account". These are required minimum distributions, and they exist because the government deferred its tax and now wants it.

With one exception, and it is the quiet advantage of a Roth: "You're not required to take withdrawals from Roth IRAs, or from Designated Roth accounts in a 401(k) or 403(b) plan while the account owner is alive." The tax was taken at the start, so nothing is waiting to be collected. Beneficiaries are a different matter.

Which is a question nobody can answer for you

The honest version of the comparison is this. Before-tax accounts are taxed at whatever rate you are on when you withdraw. After-tax accounts are taxed at whatever rate you are on when you contribute. The arithmetic turns entirely on which of those two rates is higher, and one of them is decades away and set by a future Congress.

That is not a gap in the published material. It is a fact about the question.

If you are not in the United States

None of the above tells you how another country treats these accounts, and none of the American labels survive the border intact.

New Zealand answers that question on its own terms, which is set out here, and there are separate questions about contributing to one while living in New Zealand and about whether a 401(k) balance affects an Australian pension.

The Roth is the one to be most careful with. Its tax-free withdrawal is a promise made by United States law, and another country's tax system is under no obligation to honour a category it did not create.

What this guide does not tell you

It does not cover 403(b) and 457 plans, SIMPLE and SEP IRAs, or solo 401(k)s, all of which have their own limits.

It does not cover rollovers or conversions between the two tax treatments, or the rules that apply to an inherited account.

And it does not tell you what your own limit is, because several of these figures depend on your filing status and your income, and all of them are adjusted each year.